Drawdown percentage - not needed to have funds left

Gaz012012

Hello.

I hope to have £500k pension pot at retirement and current plan is drawdown. I hear 4 ish percent is a safe ish limit - however I think thats so you have funds left? 
I have earnt my pot and I am comfortable using it all - say I lived 20 years after taking me pension - what amount per year would you suggest?
Appreciate its crystal ball time and no one knows how the investment will perform.
Even if no growth (or loss) that woulf be £25k a year.

Hoenir

Gaz012012 said:

Even if no growth (or loss) that woulf be £25k a year.

The buying power would be eroded by inflation though. 

Albermarle

Gaz012012 said:

Hello.

I hope to have £500k pension pot at retirement and current plan is drawdown. I hear 4 ish percent is a safe ish limit - however I think thats so you have funds left? 
I have earnt my pot and I am comfortable using it all - say I lived 20 years after taking me pension - what amount per year would you suggest?
Appreciate its crystal ball time and no one knows how the investment will perform.
Even if no growth (or loss) that woulf be £25k a year.

4% is a theoretical SWR ( safe withdrawal rate ) . It means that if you live to a ripe old age, the money has only a  small chance of running out. If markets are kind then there may be a lot left when you die.


If you take your pension at 60 you still have a 25% chance of living until your 90's.

That £25K needs to increase each year to keep pace with inflation.

Gaz012012

I do get that thank you - however if I wanted it to last 20 years (i know we don't know how it will perform) what % would you suggest for it to be nil in 20 yrs?

noitsnotme

Try playing around with some numbers here - https://www.guiide.co.uk/

Its free and can give you a rough idea of how long a pot will last if you spend a certain amount each year.

rjmachin

A very quick spreadsheet calculation, if you start with 3.9% of £500,000 (£19,500) and then increase your withdrawal by 2.5% per year (BOE inflation target, so year 2 withdrawal of £19,987), at the end of year 20, you would have £1,880 left.

This is without any growth or loss and just 2.5% inflation, which could be anything

TadleyBaggie

I used to drawdown 4.5% and was still maintaining growth. Dropped it below 4%, simply to stay out of higher rate tax.

NoMore

If you really want it to be zero in twenty years, just take 1/(number of years left) each year of the remaining amount and you will be guaranteed to take all of it. Would be a very variable amount taken each year and in no way am I recommending this, but it would achieve your aim of zero in 20 years.

german_keeper

Doesn't really affect me but I do find these type of threads quite interesting. Reading different opinions about how to drawdown a large DC pot, SWR and all that. But this is another one where after several replies nobody has mentioned State Pension; that seems to happen a lot. Surely that is crucial in making these sort of decisions, take a larger % pre SP and a smaller % post SP. Or am I missing something? 

squirrelpie

The 4% is a US rate. Many people say 3.5% is an equivalent rate in the UK.

Why the emphasis on running it down in 20 years? The length of your life is the biggest variable. You could drop dead tomorrow. Equally you might still be hale and hearty at 100. Performance of investments doesn't really matter against that kind of variability (not that you should ignore the investments!).

One way to ensure it lasts exactly as long as you do and leaves nothing behind is to buy an annuity. What's best really all depends on what your overall goals and circumstances are.

SouthCoastBoy

Can't speak for you but my plan is draw additional money prior to spa, then when spa kicks in reduce my withdrawal amounts. However everyone is different I would suggest creating a spreadsheet, calculate how much you need to meet your needs per month allowing for inflation and go from there. Personally I wouldn't focus on trying to exhaust your pot as unless you buy an annuity it would be very difficult to time. I am trying to do the opposite and ensure I have plenty left when I finally depart this world as I don't really want to end my life living on only the state pension.